- I intend to investigate the impact of hurricanes on the economy in Central America.
i. From an economics perspective, this question is interesting because it has potential to reveal the positive or negative affect of this natural disaster of a developing region. This will help in developing a general understanding of major problems in Central American economy, and may inspire solutions that will increase standard of living and growth.
ii. Additionally, it will be economically interesting to investigate the multiplier effect of hurricane damage, in comparison to the multiplier effect of disaster relief spending. Is there a correlation between foreign aid/ government relief spending and GDP growth rate after major storms?
iii. To the greater world, this study is relevant in its ability to relate to other areas. Natural disasters occur all over the world, so it may be interesting to compare, for example, economic effect of hurricanes in Central America with the economic effect of floods in India.
iv. This research was inspired by a particular interest in this region, and an objective to investigate aggregate economy (GDP, CPI, etc), as a function of exogenous variables.
i. In the next section, I will describe Belasen and Polachek, Stobl, Mark Ruhl, and Alex Julco’s various approaches to this problem. In section two, I will attempt to regress hurricane damage on various factors including GDP, income, and CPI in attempt to see if the effects are the same through various facets of the economy. In the following section, I will use this data to test the hypothesis that economy negatively affected by hurricanes. Finally, I will conclude.
- Literature Review
- Considering various literary reviews, it is clear that this question remains unanswered despite similar studies that have been conducted.
- Arial Belasen and Solomon W. Polachek have determined that, in general, worker earnings in Florida “increase by up to 4%” in counties hit by a hurricane. Overtime, however, affected areas experience faster earning increases but slower employment growth when compared to unaffected counties.
- Similarly, Eric Strobl finds that in Us coastal countries, hurricanes cause an initial drop in GDP, followed by a small rise in GDP.
- From a more global perspective, Alex Julco questions why it seems that more natural disasters occur in developing regions when compared to developed ones. She concludes that weak adaptive capacities and inadequate infrastructure trigger increasing inequalities as a result of disasters.
- Examing government in Central America, Mark Ruhl reports severe corruption as a hindrance of economic growth. According to Ruhl, government corruption in Central America is far worse than in other areas of the world, which has created problems such as income disparity. So, it seems that there is potential for Central America to improve their standard of living and production, but a lack of political follow through.
- Considering these publications from a preliminary perspective, it seems that GDp and income are good ways to measure the result of hurricane damage in a given economy. However, it is important to acknowledge that there are other factors impacting the economic climate, such as government corruption.
- Create a testable hypothesis
i. Does hurricane damage affect Central American Economy?
ii. Example evidence: years with a high amount of damage negatively affect aggregate GDP, average income, and CPI.
iii. I will be using econometric tools, by regressing hurricane damage on GDP, average income, and CPI between the years 2000 and 2011. Specifically, I plan to run a multi variable OLS regression in Stata.
- My paper is a theory-based argument, because it tests the hypothesis that hurricanes negatively affect GDP (so cause lower GDP, average income, and CPI).
- The ideal data set will reflect whether or not there is a multiplier affect
- Specifically, I have compiled data from the World Bank Data bas, revealing economic changes to this region over the time period, and Em-Dat (The international disaster database) which shows annual damage caused by hurricanes in US Dollars.
- Ideaslly, I will be able to conduct a separate regression for each nation, and then compare them. However, it may be more efficient to conduct my research by considering changes in the economy of the region as a whole
- Without conducting any sophisticated findings, the result is unclear at this point. However, considering the data, it does not seem like the economic affect is as significant as one would originally predict.
Belesan, Arial, and Polechek Solomon. ” How Disasters Affect Local Labor Markets: The Effects of Hurricanes in Florida.” Journal of Human Resources. 44.1 (2009): n. page. Web. 5 Oct. 2012.
Ruhl, Mark. ” Political Corruption in Central America: Assessment and Explanation.” Latin American Politics and Society. 53.1 (2011): n. page. Web. 5 Oct. 2012.
Julco, Alex. ” Natural Disasters with Un-natural Effects: Why?.” Journal of Economic Issues. 46.2 (2012): n. page. Web. 5 Oct. 2012.
Strobl, Eric. “The Economic Growth Impact of Hurricanes: Evidence from US Coastal Counties.” IZA. (2008): n. page. Print.